Australia government blessed with budget windfall as election looms

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SYDNEY (Reuters) - A surging tax-take has blessed Australia’s centre-right government with the smallest budget deficit in a decade and the means to fund a host of voter friendly spending promises as it struggles in the polls.

FILE PHOTO: The new Australian Prime Minister Scott Morrison shakes hands with the new Treasurer Josh Frydenberg after the swearing-in ceremony in Canberra, Australia August 24, 2018. REUTERS/David Gray

The Liberal National Coalition led by Prime Minster Scott Morrison has to face the nation by May next year and trails badly after dumping former leader Malcolm Turnbull in a bout of internecine party warfare a month ago.

Swelling coffers offer the chance to throw money at some long-standing political problems, such as a A$4.6 billion (2.5 billion pounds) injection into Catholic and private schools announced just last week.

Addressing a news conference on Tuesday Treasurer Josh Frydenberg said a combination of higher tax receipts and restrained welfare spending had shrunk the budget shortfall to A$10.1 billion in the year to end June.

That was down from a projection of A$18.1 billion made as recently as May and, at 0.6 percent of gross domestic product (GDP), the smallest since the global financial crisis.

The swing owed much to record-high company profits, which helped boost tax receipts by A$13.4 billion, while faster growth in the economy and jobs restrained welfare payments.

Despite the marked improvement the government stuck with its forecast that the budget would not return to surplus until 2019/20, with Frydenberg dodging question on why it would not happen sooner.

“We absolutely continue to have a very disciplined approach when it comes to our Budget management,” he told reporters.

Economists had thought a surplus was attainable in the current fiscal year, but the government is still projecting a deficit of A$14.5 billion.

“This (deficit) should be lower based on the economic performance, but will be dependent on policy changes,” said Belinda Allen, a senior economist at Commonwealth Bank of Australia.

“With a better budget bottom line, new spending measures are expected to be announced in the lead up to the Federal Election due around May,” she said.

Morrison has already decided to scrap a rise in the retirement age to 70, from the current 67, and is widely expected to accelerate planned tax cuts for small business.

The progress on the deficit had been enough to earn a nod from S&P Global Ratings, which last week lifted the outlook on Australia’s triple-A rating to stable and thus removed any risk of a politically damaging downgrade.